Shareholder Backs Yahoo!, Supports Independence

mikkl666 writes "In a follow-up to yesterday's story about the struggle between Microsoft and Yahoo!, major Yahoo! shareholder Legg Mason has announced that they are ready to back the company in their effort to keep out of Microsoft's grip. According to portfolio manager Bill Miller, 'the problem is Microsoft blundered with the letter this weekend. Telling the shareholders you're going to take something away from them is not a way to get their support'. Nevertheless, he believes Microsoft will end up paying what it takes to own Yahoo."

Re:What is MS hoping to gain exactly?

[explosivejared]

Is it just me, or is there only chaos and mayhem in store if MS tries to merge with Yahoo?

Well that's what everyone around here is hoping. As for the other part of your post, this has nothing to do with technology. It has to do with market positioning and mind share. Microsoft wants to consolidate the online Yahoo! brand, which has a big following, with the MSN brand, which has had mixed results. This consolidation, in Microsoft's mind, will prime them for competition with Google.

If Microsoft aquires yahoo, then you can be sure that all of yahoo's open source stuff will be buried unceremoniously. So from a technical standpoint, it probably is a nightmare for yahoo, but, again, this isn't about technology. It's all about marketing.

Usual motions

[Anonymous Coward]

Company A wants to buy Company B. Company A offers a price to shareholders, not too high, because if you pay too much you get punished by your own shareholders, so typically a bit too low. Then Company B waves their hands in the air, and start playing a hard to get bitch. Company A prepares a higher bid. Repeat a number of times. And Yahoo will be Microsoft's. So far it's just a bidding game.

Re:What is MS hoping to gain exactly?

[ColdWetDog]

What MS is hoping to gain has been extensively reported. Mostly it's an attempt to compete with Ballmer's Worst Nightmare - Google. What I find interesting is that a major stock holder who is presumably emotionally unattached from all the yapping and barking doesn't think it's such a good idea.

(Legg Mason is a large Asset Management Firm [wikipedia.org]).

Methinks the world in general would be better served if Mr. Ballmer upped his medication dose.

What is Yahoo Worth?

[RobBebop]

Yahoo! [yahoo.com] is currently maintaining a $36 Billion dollar market cap. It goes without saying that deciding what an internet company is worth is somewhat shaky ground, but they are profitable by $0.47 per share in the last year and they have a set of managers who are clamoring that they have a lot of new revenue streams that are going to materialize in the next year or two.

So, what is Yahoo! actually worth if Microsoft's offer isn't good enough? $40 Billion? $50 Billion? $60 Billion? $100 Billion?

Can anybody defend their valuation with some finite analysis that goes beyond pulling numbers out of thin air? Furthermore, can somebody figure out how much Microsoft would be willing to pay based on the benefits that merging Yahoo's customers and properties into their own would produce?

If you look at the 5-year chart for MSFT [yahoo.com], it is pretty clear that they have done a good job of maintaining the status quo... while the only real marketable success that they have enjoyed during that time has been the introduction of a competitive video game system.

On the other hand, the 6 month chart for Google [yahoo.com] is suggestive that the future value of internet based ad revenue isn't worth nearly as much as it used to be.

So, what gives?

Integration = death march for MSFT

[Fastball]

Two very divergent cultures. I think it is a lose-lose for MSFT. Get the deal done, and they become mired in a prolonged integration while adding significant debt to their balance sheet. The deal falls through and they are still left with an eroding cash flow (Windows) and problems with execution in virtually everything else they are in.

It is fascinating. You have two dinosaurs from two different periods. The Windows OS boom during the late 80s to mid 90s for MSFT and the internet boom during the mid 90s to early 00s.

I'm not expecting the best of times for either company, but unlike most folks, I'd bet on Yahoo for an appreciation 5-10 years out from now. MSFT is almost like a energy MLP. Everyone gets paid...until the resource runs out.

Re:What is MS hoping to gain exactly?

[peragrin]

That's the point actually MSFT has a horrible track record when it comes to actually using purchases. MSFT will abuse Yahoo until it no longer exists, change it, mold it until it looks like Windows Live and Hotmail.

The only thing Yahoo has that MSFT wants is customers for their online services. If MSFT wants customers it should try competing for them in an open market place instead of just trying to buy them.

Re:What is Yahoo Worth?

[RobBebop]

Better still, it is expected to double in just four years to about $40 billion. Better than a sharp stick in the eye.

So they think they can capture 50% of the $40 Billion revenue per year in 2012 (assuming they can split it with the other major competitor), instead of 20% (if they are fighting against both Google and an independent Yahoo!).

I like it. Your reason gets a gold star. Yahoo! will help MSFT capture revenues of $20 Billion per year of internet advertising revenues instead of $8 Billion per year in only a matter of several years. Subtract out the costs, and owning Yahoo! might generate an extra $30 Billion dollars in 7 years time... which certainly makes them worth at least $40 Billion now.

Control of Yahoo's board, *without* buying them???

[RexDevious]

There's good argument that MS is only after market share, primarily in email where the acquisition would give them a monopoly - less so in search and web properties where it would only slow their loss. And there's no argument that MS is after technology - as Yahoo's stuff is run on open source platforms MS could leave in place for awhile; but certainly not publicly develop further.

However... consider this scenario:

1. Microsoft makes a huge bid for Yahoo that, while not clearly being in it's own best interests, clearly *is* in the best interest of Yahoo shareholders, and is far too large to be matched by anyone.
2. Yahoo predictably resists the offer, to the point where it's arguably *not* acting in the best interests of it's shareholders.
3. Microsoft uses this behaviour to wage a proxy fight to get Yahoo's whole board of directors fired and replaced with people it favours.
4. Microsoft now essentially controls the board of a competitor, without ever having actually bought them.

Now... however you feel about an actual acquisition of Yahoo by Microsoft - can we all agree it would make perfect sense for Microsoft to wrest control of Yahoo's board of directors - even if they had no intention of buying them?

Can anyone shed any light on whether it would be possible for Microsoft to win a proxy fight without an iron-clad guarantee they'd buy Yahoo under the terms of their current offer; or if Yahoo could do something that would force them to should the offer be a whole or partial bluff to win a proxy fight?

Former Yahooligans?

[zentinal]

I would assume that since the takeover has been announced, that Yahoo! has been bleeding talented folks who don't want to be assimilated.

Have any of these folks started new companies? Any high profile defections to the Googleplex? Or would that be prevented by non-compete clauses in their contracts?

Re:What is MS hoping to gain exactly?

[Captain Nitpick]

Third, large scale mergers like this almost never work. AOL-Time Warner. Daimer-Chrylser. Recent history has shown that failure happens more often than naught. And those mergers were approved by both companies involved.

Counterexample: ExxonMobil. Although the old Mobil employees still complain about the Exxon corporate culture.

Breaking news: Yahoo Google Aliance...

[AHTuttle]

Seems interesting given the timing...

http://news.yahoo.com/s/nm/20080409/bs_nm/yahoo_google_dc;_ylt=At1ZbJEnb.d8l6sncqqoLY6s0NUE [yahoo.com]

  Yahoo in talks to use Google search ads: source

  SAN FRANCISCO/NEW YORK (Reuters) - Yahoo Inc (YHOO.O) is in advanced talks to carry Web search advertising from Google Inc (GOOG.O) as part of a search for potential alternatives to being bought by Microsoft Corp (MSFT.O), a source familiar with the discussions said on Wednesday.

Yahoo also is still in talks with Time Warner Inc's (TWX.N) AOL about a potential tie-up, the person said.

I'm not sure which I'd rather have them be in bed with. But somehow I think this is better than MS.